Commercial real estate investing is a specialized practice that can be rewarding, but high-risk. The level of risk depends on property type and how it will be used. Commercial properties range from homes that have been zoned for business to expansive industrial parks.
Popular commercial real estate investment properties include: business centers, retail stores, condominium and apartment buildings, shopping malls, golf courses, and parcels of undeveloped land.
Several considerations should be given before getting involved with commercial investments. When properties are used for conducting business they must remain in compliance with zoning laws and have appropriate building permits.
Building permits are obtained through the local zoning commissioner's office and must be in place before altering existing buildings or developing raw land. Land parcels must be inspected and tested prior to erecting buildings. It is crucial for investors to engage in due diligence before presenting purchase offers for land zoned for commercial use.
Office buildings, apartments, condos, and retail stores must adhere to provisions of the Americans with Disabilities Act. These include providing adequate disability parking access and specially equipped restroom facilities. Additionally, property owners must purchase adequate liability insurance before leasing to tenants.
Investors must become familiar with county and state laws regarding use of commercial realty. It is strongly recommended to obtain legal counsel to review purchase agreements and tenant leases.
It can be advantageous for investors to become educated about landlord/tenant laws when leasing commercial properties. Other legal matters to be aware of include property taxes, liability insurance, and property management needs.
Investing in commercial real estate is usually more costly than buying residential homes. A common practice is to join forces with other investors to offset costs. When investment groups purchase retail stores, office buildings, shopping malls, or apartment buildings they typically hire a property management group and maintenance staff to oversee leasing and general maintenance requirements.
The role of property managers encompasses screening tenants, rent collection, and overseeing landscaping and maintenance duties. In some instances, a leasing agent is hired to manage tenant lease contracts. The type of property management duties needed depends on the building and its use. An apartment building will require more attention than a single home zoned for business use.
Investors must be proactive in calculating income to expense ratios before investing in commercial properties. When tenant retention rates are low, operating costs outweigh rental income. This is of particular importance when investing in properties that require multiple tenants to break even. On average, occupancy rates must exceed 50-percent to cover operating expenses.
Commercial properties are typically priced much higher than residential property. However, leasing rates are typically much higher as well. The square footage cost of commercial realty is often two to three times higher than residential rates.
It is imperative to compare financial risks vs. rewards before investing in this market. Investors can be placed at higher risk for foreclosure when investing in commercial properties. However, those who take time to learn the ropes can generate positive cash flow and have the potential to obtain a hefty return on investment when the property is sold.
Popular commercial real estate investment properties include: business centers, retail stores, condominium and apartment buildings, shopping malls, golf courses, and parcels of undeveloped land.
Several considerations should be given before getting involved with commercial investments. When properties are used for conducting business they must remain in compliance with zoning laws and have appropriate building permits.
Building permits are obtained through the local zoning commissioner's office and must be in place before altering existing buildings or developing raw land. Land parcels must be inspected and tested prior to erecting buildings. It is crucial for investors to engage in due diligence before presenting purchase offers for land zoned for commercial use.
Office buildings, apartments, condos, and retail stores must adhere to provisions of the Americans with Disabilities Act. These include providing adequate disability parking access and specially equipped restroom facilities. Additionally, property owners must purchase adequate liability insurance before leasing to tenants.
Investors must become familiar with county and state laws regarding use of commercial realty. It is strongly recommended to obtain legal counsel to review purchase agreements and tenant leases.
It can be advantageous for investors to become educated about landlord/tenant laws when leasing commercial properties. Other legal matters to be aware of include property taxes, liability insurance, and property management needs.
Investing in commercial real estate is usually more costly than buying residential homes. A common practice is to join forces with other investors to offset costs. When investment groups purchase retail stores, office buildings, shopping malls, or apartment buildings they typically hire a property management group and maintenance staff to oversee leasing and general maintenance requirements.
The role of property managers encompasses screening tenants, rent collection, and overseeing landscaping and maintenance duties. In some instances, a leasing agent is hired to manage tenant lease contracts. The type of property management duties needed depends on the building and its use. An apartment building will require more attention than a single home zoned for business use.
Investors must be proactive in calculating income to expense ratios before investing in commercial properties. When tenant retention rates are low, operating costs outweigh rental income. This is of particular importance when investing in properties that require multiple tenants to break even. On average, occupancy rates must exceed 50-percent to cover operating expenses.
Commercial properties are typically priced much higher than residential property. However, leasing rates are typically much higher as well. The square footage cost of commercial realty is often two to three times higher than residential rates.
It is imperative to compare financial risks vs. rewards before investing in this market. Investors can be placed at higher risk for foreclosure when investing in commercial properties. However, those who take time to learn the ropes can generate positive cash flow and have the potential to obtain a hefty return on investment when the property is sold.
Source...